What’s your home worth? Or what about that investment property you’re eyeing up – how much is it worth?
The short answer is that a property is worth whatever someone is prepared to pay for it.
When the market is booming, the price that the average person is prepared to pay keeps rising. When the market is slumping, the price keeps falling. When the market is sluggish, the price remains about the same.
The key word here is ‘market’.
The property market, like any other market, is based on the relationship between supply and demand. That’s why prices can move up, down and sideways.
Supply is just as important as demand
Everyone knows that property prices are influenced by demand – how many people are looking to buy in a particular suburb, city or region.
But some people forget that property prices are also influenced by supply – how many homes are on the market in a particular suburb, city or region.
That’s why population growth doesn’t automatically equal price growth.
If a suburb experiences strong population growth but even greater amounts of home building activity, there’s likely to be downwards pressure on property prices.
Conversely, if a suburb experiences weak population growth but even lower amounts of home building activity, there’s likely to be upwards pressure on property prices.
Why property demand rises and falls
So what influences demand?
Well, Australians want to live near jobs, so demand tends to rise when a location experiences jobs growth, while it tends to fall when it experiences job losses.
People want to live near amenities, so demand tends to rise when new amenities are added, while it tends to fall when amenities are removed or fall into disrepair.
People also want to live in safe locations, so demand tends to rise when crime rates fall, while it tends to fall when crime rates rise
Why property supply rises and falls
Demand for property is just one half of the equation. So what influences the supply of property?
Well, developers respond to price signals – they’re encouraged to build new homes when a location experiences price growth and discouraged when it experiences price falls.
Developers respond to local government policy – they’re encouraged to build when councils ease development rules and discouraged when they tighten the rules.
Developers respond to bank policy – they’re encouraged to build when lenders make it easier to borrow money and discouraged when they make it harder to borrow.
Developers also respond to signals in the wider economy – they tend to open their wallets when times are good and close them when times are bad.
The relationship between supply and demand always changes
So if you’re wondering how much your property is worth, there are two ways to answer the question.
The first is to simply state that it’s worth whatever someone will pay for it.
The second is to say that it depends on the complex and ever-changing relationship between supply and demand.
What’s happening with employment, amenities and crime in your local area? What’s happening with building rules, finance rules and the wider economy? The answer to those questions will go a long way to telling you what your home is worth now and what it’s likely to be worth in the future.
How to research these questions?
Many places offer some statistics and information to help you get an idea of some of these questions. Places like propertyvalue.com.au can provide hard data on your property. To really understand what a place is like to live in, you should then visit sites that have user reviews on locations. Homely.com.au provide suburb reviews that are written by those that live there and provide a unique insight into questions that real estate agents and data companies can’t tell you about.
